UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE EXCHANGE ACT
For the transition period from _______ to ______
Commission File No. 1-11642
LASER TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 84-0970494
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
7070 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
------------------------------------------------
(Address of principal executive offices)
(303) 649-1000
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|.
At July 1, 2003, 5,486,217 shares of common stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|.
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements.................................................. 2
Consolidated Balance Sheets................................................. 2
Consolidated Statements of Operations....................................... 4
Consolidated Statements of Cash Flows....................................... 5
Notes to Consolidated Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation ............12
Results of Operations.......................................................12
Liquidity and Capital Resources.............................................14
Cautionary Statements Regarding Forward-looking Statements..................15
Item 3. Controls and Procedures ..............................................15
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.....................................................16
Item 2. Changes in Securities and Uses of Proceeds............................16
Item 3. Defaults Upon Senior Securities.......................................16
Item 4. Submission of Matters to a Vote of Security Holders...................16
Item 5. Other Information.....................................................16
Item 6. Exhibits and Reports in Form 8-K......................................17
Signatures............................................................18
Certifications........................................................19
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASER TECHNOLOGY, INC.
Consolidated Balance Sheets
ASSETS
June 30, September 30,
2003 2002
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,161,740 $ 3,612,637
Trade accounts receivable, less allowance
for doubtful accounts of $32,796 and $25,088
at June 30, 2003 and September 30, 2002, respectively 1,865,782 1,835,641
Royalties receivable 0 475,245
Inventories 2,956,402 2,846,880
Deferred income tax benefit 590,714 236,903
Prepaids and other current assets 99,040 95,210
Income tax prepayment 101,964 13,787
----------- -----------
Total Current Assets 8,775,642 9,116,303
PROPERTY AND EQUIPMENT, net of accumulated
Depreciation 379,878 540,085
----------- -----------
OTHER ASSETS 1,021,041 1,037,260
----------- -----------
TOTAL ASSETS $10,176,561 $10,693,648
=========== ===========
See accompanying notes to the consolidated financial statements
2
LASER TECHNOLOGY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
2003 2002
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 851,069 $ 651,996
Accrued expenses 341,864 268,076
------------ ------------
Total Current Liabilities 1,192,933 920,072
------------ ------------
TOTAL LIABILITIES 1,192,933 920,072
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value--shares authorized
2,000,000; shares issued--none -- --
Common stock, $.01 par value-shares
authorized 25,000,000; shares issued 5,710,867 and 5,486,217 outstanding 57,109 57,109
Additional paid-in capital 10,314,226 10,314,226
Treasury stock at cost, 224,650 shares (194,259) (194,259)
Retained earnings (deficit) (1,193,448) (403,500)
------------ ------------
Total Stockholders' Equity 8,983,628 9,773,576
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,176,561 $ 10,693,648
============ ============
See accompanying notes to the consolidated financial statements
3
LASER TECHNOLOGY, INC.
Consolidated Statements of Operations
For the Three and Nine Months Ended
June 30, 2003 and 2002
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
NET SALES $2,968,545 $2,714,487 $7,925,813 $7,415,294
LESS COST OF GOODS SOLD 1,365,017 1,274,831 3,766,891 3,673,134
---------- ---------- ---------- ----------
Gross Margin 1,603,528 1,439,656 4,158,922 3,742,160
ROYALTY AND LICENSING INCOME 180,126 175,353 483,585 521,241
---------- ---------- ---------- ----------
TOTAL OPERATING INCOME 1,783,654 1,615,009 4,642,507 4,263,401
OPERATING EXPENSES 2,440,194 1,776,588 5,897,149 5,146,859
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (656,540) (161,579) (1,254,642) (883,458)
OTHER INCOME (EXPENSE), NET 11,357 22,859 28,505 73,284
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CHANGES IN ACCOUNTING ESTIMATE (645,183) (138,720) (1,226,137) (810,174)
CHANGES IN ACCOUNTING ESTIMATE INCOME/(EXPENSE) -- -- -- (14,945)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES ON INCOME (645,183) (138,720) (1,226,137) (825,119)
TAXES ON INCOME (BENEFIT) (227,045) (49,939) (436,189) (297,043)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $(418,138) $(88,781) $(789,948) $(528,076)
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER
COMMON SHARE $(0.08) $(0.02) $(0.14) $(0.10)
====== ====== ====== ======
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,486,217 5,486,217 5,486,217 5,486,217
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE $(0.08) $(0.02) $(0.14) $(0.10)
====== ====== ====== ======
DILUTED AVERAGE SHARES
OUTSTANDING 5,486,217 5,486,217 5,486,217 5,486,217
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements
4
LASER TECHNOLOGY, INC.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
For the Nine Months Ended June 30, 2003
And June 30, 2002
(Unaudited)
June 30, June 30,
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(789,948) $(528,076)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 308,908 375,115
Write down of Patent 0 14,945
Loss on disposals 2,087 4,416
Changes in operating assets and liabilities:
Trade accounts and royalty receivable 445,104 1,022,486
Inventories (109,522) 1,196,245
Deferred income tax benefit (353,811) 0
Other assets (92,009) (246,601)
Accounts payable and accrued expenses 272,861 (45,323)
---------- ----------
Net cash provided by (used in) operating activities (316,330) 1,793,207
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs paid (48,656) (49,606)
Purchases of property and equipment (85,911) (110,076)
---------- ----------
Net cash provided by (used in) investing activities (134,567) (159,682)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt and capital leases 0 (14,611)
---------- ----------
Net cash used in financing activities 0 (14,611)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (450,897) 1,618,914
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,612,637 1,641,586
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $3,161,740 $3,260,500
========== ==========
See accompanying notes to the consolidated financial statements
5
LASER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Information for the three and nine months ended June 30, 2003 is unaudited)
NOTE 1 - Summary of Significant Accounting Policies
a. Basis of Presentation
The consolidated financial statements presented are those of Laser Technology,
Inc. and its wholly-owned subsidiaries; Laser Communications, Inc., Laser
Technology, U.S.V.I., Light Solutions Research, Inc. and International
Measurement and Control Company. Laser Technology, Inc. is presently engaged in
the business of developing, manufacturing and marketing laser based measurement
instruments.
In the opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal recurring accruals necessary for a fair
presentation of (a) the consolidated statements of operations for the three and
nine month periods ended June 30, 2003 and 2002, (b) the consolidated financial
position at June 30, 2003, and (c) the consolidated statements of cash flows for
the nine month periods ended June 30, 2003 and 2002. The accounting policies
followed by us are set forth in the Notes to the Consolidated Financial
Statements for the fiscal year ended September 30, 2002. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the full year.
b. Earnings Per Share
SFAS No. 128 provides for the calculation of "Basic" and "Diluted" income (loss)
per share. Basic income (loss) per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution of securities that could share in the earnings
of an entity that were outstanding for the period. Common stock equivalents are
not included in the computation of Diluted earnings per share for the three and
nine months ended June 30, 2003 and June 30, 2002 because they are antidilutive.
The following is provided to reconcile the earnings per share calculation:
Three Months Ended
June 30,
---------------------------
2003 2002
--------- ---------
Basic Earnings Per Common Share:
Numerator
Net Income (Loss) $(418,138) $(88,781)
Denominator
Weighted Average Shares 5,486,217 5,486,217
--------- ---------
Per Share Amounts
Basic Earnings (Loss) $(0.08) $(0.02)
====== ======
Diluted Earnings Per Common Share:
Numerator
Net Income (Loss) $(418,138) $(88,781)
Denominator
Weighted Average Shares 5,486,217 5,486,217
Employee & Non Employee
Stock Options 0 0
--------- ---------
5,486,217 5,486,217
Per Share Amounts
Basic Earnings (Loss) $(0.08) $(0.02)
====== ======
6
Nine Months Ended
June 30,
---------------------------
2003 2002
--------- ---------
Basic Earnings Per Common Share:
Numerator
Net Income (Loss) $(789,948) $(528,076)
Denominator
Weighted Average Shares 5,486,217 5,486,217
--------- ---------
Per Share Amounts
Basic Earnings (Loss) $(0.14) $(0.10)
====== ======
Diluted Earnings Per Common Share:
Numerator
Net Income (Loss) $(789,948) $(528,076)
Denominator
Weighted Average Shares 5,486,217 5,486,217
Employee & Non Employee
Stock Options 0 0
--------- ---------
5,486,217 5,486,217
Per Share Amounts
Basic Earnings (Loss) $(0.14) $(0.10)
====== ======
Our primary operating segments for the three and nine months ended June 30, 2003
and 2002 were as follows:
Three Months Ended
June 30, 2003
---------------------------------------------------------------------
Traffic Professional
Safety Measurement Other Royalties Total
---------- -------------- ---------- ----------- --------------
Net sales $2,188,334 $475,148 $305,063 $2,968,545
Cost of goods sold 997,959 207,430 159,628 1,365,017
Sales and marketing expenses 606,110 213,476 33,258 852,844
Gross margin (after sales and marketing expenses) 584,265 54,242 112,177 750,684
Royalty and licensing income 180,126 180,126
Total other operating expenses 1,587,350
Income from operations (656,540)
Other income (expense), net 11,357
Income before taxes on income (loss) (645,183)
Taxes on income.(benefit) (227,045)
Net income (loss) $(418,138)
7
Three Months Ended
June 30, 2002
---------------------------------------------------------------------
Traffic Professional
Safety Measurement Other Royalties Total
---------- -------------- ---------- ----------- --------------
Net sales $1,973,247 $456,493 $284,747 $2,714,487
Cost of goods sold 942,540 198,907 133,384 1,274,831
Sales and marketing expenses 538,962 174,727 29,794 743,483
Gross margin (after sales and marketing expenses) 491,745 82,859 121,569 696,173
Royalty and licensing income 175,353 175,353
Total other operating expenses 1,033,105
Income from operations (161,579)
Other income (expense), net 22,859
Income before taxes on income (loss) (138,720)
Taxes on income.(benefit) (49,939)
Net income (loss) $(88,781)
Nine Months Ended
June 30, 2003
---------------------------------------------------------------------
Traffic Professional
Safety Measurement Other Royalties Total
---------- -------------- ---------- ----------- --------------
Net sales $5,311,848 $1,705,314 $908,651 $7,925,813
Cost of goods sold 2,480,133 838,725 448,033 3,766,891
Sales and marketing expenses 1,562,906 536,484 109,513 2,208,903
Gross margin (after sales and marketing expenses) 1,268,809 330,105 351,105 1,950,019
Royalty and licensing income 483,585 483,585
Total other operating expenses 3,688,246
Income from operations (1,254,642)
Other income (expense), net 28,505
Income before taxes on income (loss) (1,226,137)
Taxes on income (benefit) (436,189)
Net income (loss) $(789,948)
Nine Months Ended
June 30, 2002
---------------------------------------------------------------------
Traffic Professional
Safety Measurement Other Royalties Total
---------- -------------- ---------- ----------- --------------
Net sales $5,068,100 $1,664,957 $682,237 $7,415,294
Cost of goods sold 2,517,807 804,197 351,130 3,673,134
Sales and marketing expenses 1,492,066 591,609 76,582 2,160,257
Gross margin (after sales and marketing expenses) 1,058,227 269,151 254,525 1,581,903
Royalty and licensing income 521,241 521,241
Total other operating expenses 2,986,602
Income from operations (883,458)
Other income (expense), net 73,284
Income before taxes on income (loss) (810,174)
Changes in Accounting Estimate(expense) (14,945)
Taxes on income (benefit) (297,043)
Net income (loss) $(528,076)
8
d. Recent Accounting Pronouncements
On August 16, 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations," which is effective for fiscal years beginning
after June 15, 2002. It requires that obligations associated with the retirement
of a tangible long-lived asset be recorded as a liability when those obligations
are incurred, with the amount of the liability initially measured at fair value.
Upon initially recognizing an accrued retirement obligation, an entity must
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its present
value each period, and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
Although we have not completed the process of determining the effect of this new
accounting pronouncement, we currently expect that the effect of SFAS No. 143 on
our consolidated financial statements will not be significant.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Although SFAS 144
supersedes SFAS 121, it retains many of the fundamental provisions of SFAS 121.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting-the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, it retains the requirement in APB 30 to report
separately discontinued operations and extends that reporting to a component of
an entity that either has been disposed of, by sale, abandonment, or in a
distribution to owners, or is classified as held for sale. SFAS 144 is effective
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years. We believe the adoption of SFAS 144 will not have a
significant effect on our consolidated financial statements.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS 145). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
Statement of Financial Accounting Standards No. 4 (SFAS 4). Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. SFAS 145 also amends Statement of Financial Accounting Standards
No. 13 to require certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). SFAS 145 is effective for
financial statements issued after May 15, 2002, and with respect to the impact
of the reporting requirements of changes made to SFAS 4 for fiscal years
beginning after May 15, 2002. The adoption of the applicable provisions of SFAS
145 did not have an effect on our financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 nullifies Emerging Issues
Task Force Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 applies to costs associated with
an exit activity that does not involve an entity newly acquired in a business
combination or with a disposal activity covered by SFAS 144. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier application encouraged.
9
In October 2002, the FASB issued Statement No. 147 "Acquisitions of Certain
Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9" (SFAS 147). SFAS 147 removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. Thus, the requirement in paragraph 5 of Statement 72 to
recognize (and subsequently amortize) any excess of the fair value of
liabilities assumed over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset no longer applies to
acquisitions within the scope of this Statement. In addition, this Statement
amends FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
Consequently, those intangible assets are subject to the same undiscounted cash
flow recoverability test and impairment loss recognition and measurement
provisions that Statement 144 requires for other long-lived assets that are held
and used. SFAS 147 is effective October 1, 2002. The adoption of the applicable
provisions of SFAS 147 did not have an effect on our consolidated financial
statements.
In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123" (SFAS 148). SFAS 148 provides alternate methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reporting results.
SFAS 148 is effective for fiscal years beginning after December 15, 2003. We are
currently reviewing SFAS 148.
NOTE 2 - Subsequent Events
On July 3, 2003 we reached settlement agreements with Asia Optical Co., Inc. and
Nikon, Inc., which would resolve our patent infringement lawsuit against Asia
Optical and Nikon. The settlement agreement with Asia Optical includes a
one-time cash payment of $2.4 million, which was received on July 3, 2003 and
will be subject to corporate income taxes, and an ongoing royalty license
agreement, the specific terms of which are confidential. We entered into a
mutual release with Nikon based upon the settlement with Asia Optical.
Management estimates that the costs and expenses associated with the litigation
through this fiscal 2003 will be approximately $800,000. All other litigation
costs have been expensed in prior years.
Background information previously disclosed
On February 8, 2000, we filed a complaint against Nikon in U.S. District Court
for the District of Colorado (Civ. No. 00-B-272), alleging that Nikon's sale of
the Nikon Laser 800 series of laser rangefinders willfully infringes a Laser
Technology patent relating to low-cost, consumer laser rangefinders. The
complaint was later amended to add manufacturer Asia Optical Co, as a defendant,
and to add two additional patents obtained by us.
On April 17, 2003, we issued a press release announcing that a jury ruled in
favor of Laser Technology in its patent infringement lawsuit against Nikon and
Asia Optical. The verdict included an initial damage award by the jury of $1.205
million and a finding of willfulness against Asia Optical as to the three
patents in suit and against Nikon, as to one.
On July 31, 2003 we entered into a definitive merger agreement with LTI
Acquisition Corp., a private company whose shareholders include an LSR officer,
certain directors and shareholders. Under the terms of the merger agreement, LTI
Acquisition would acquire 100% of LSR common stock for $2.06 per share. The
transaction is subject to approval by the holders of two-thirds of LSR's
outstanding shares of common stock, excluding those shares owned by LTI
Acquisition and its affiliates, and other customary closing conditions. It is
anticipated that the transaction would close in the fourth calendar quarter of
2003.
We initially received a proposal from a shareholder group headed by David
Williams, former President and CEO of Laser Technology, Inc., to acquire the
assets of LSR in September 2002. The shareholder group subsequently formed LTI
Acquisition Corp., which made the proposal described above. In addition to Mr.
Williams, LTI Acquisition's shareholders
10
include Pamela Sevy, LSR's former CFO, current Board members Jeremy G. Dunne, H.
Deworth Williams, and Edward F. Cowle, and Kama-Tech Corporation and Kama-Tech
(HK) Ltd., manufacturers of sports optics equipment.
In response to the September 2002 proposal, the Special Committee of
non-participating directors was formed to examine the merits and feasibility of
any acquisition proposals or other alternatives that might arise. The Committee
retained independent legal counsel and Andersen, Weinroth & Co., L.P., a New
York based merchant banker, to act as its financial advisor.
Subsequently, the Special Committee received indications of interest and
proposals from several alternative sources. The Committee reviewed all serious
proposals and, after extensive negotiations with interested parties and a
lengthy due diligence process, the Committee, in conjunction with its investment
advisor, Andersen, Weinroth & Co., L.P., recommended to the LSR Board that it
accept the proposal from LTI Acquisition.
We intend to file with the SEC and mail to our shareholders a proxy statement in
connection with the acquisition, which will contain important information about
the merger transaction and related matters. We anticipate holding a special
meeting of shareholders in the fourth calendar quarter of 2003 to secure
shareholder approval of the merger transaction.
NOTE 3 - Equity Incentive Plan
In 1994, we adopted an equity incentive plan. This employee plan provides for
the issuance of options to our key employees and consultants to purchase up to
an aggregate of 530,000 shares of our common stock at the fair market value at
the date of grant. Fair market value is based on the closing sale price of the
common stock on the American Stock Exchange on such date. The employee plan also
allows for the grant of stock options, restricted stock awards, stock units,
stock appreciation rights and other grants to all of our eligible employees and
consultants.
On February 24, 1998, stockholders approved a proposal to amend the employee
plan. For each fiscal year beginning October 1, 1997 and through the fiscal year
beginning October 1, 2003 (seven years), a number of shares of stock equal to
two percent of the total number of issued and outstanding shares of stock as of
September 30 of the fiscal year immediately preceding such year, shall become
available for issuance under the plan. In addition, any unused portion of shares
of stock remaining from those reserved as of September 30, 1997 and any unused
portion of the two percent limit for any fiscal year shall be added to the
aggregate number of shares of stock available for issuance in each fiscal year
under the plan. In no event, subject to certain adjustments, will more than
1,000,000 shares of stock be cumulatively available for issuance pursuant to the
exercise of incentive options.
As of June 30, 2003, the total number of shares of common stock subject to all
awards under the employee plan could not exceed 1,000,000.
As of June 30, 2003, options to purchase 785,100 shares of our common stock were
outstanding, at exercise prices ranging from $1.38 to $5.25 per share of which
741,900 options were exercisable at June 30, 2003. The options are
non-transferable and primarily vest annually in three equal installments over a
three year period. The options expire five or ten years from the date of grant
or, if sooner, three months after the holder ceases to be an employee (subject
to certain exceptions contained in the employee plan).
Non-Employee Director Stock Option Plan
In 1994, we adopted a stock option program for non-employee directors. The
director plan provides for the grant of options to purchase 30,000 shares of our
common stock at the effective date of the plan to each member of our Board of
Directors who is not an employee, and a grant of options to purchase 30,000
shares to each non-employee director who is newly elected to the Board after the
effective date of the plan. The maximum number of shares that may be subject to
options issued under the director plan was initially 120,000. The exercise price
in each case is the fair market value of the common stock on the date of grant,
determined in the same manner as under the employee plan.
11
On April 21, 2000 the shareholders approved the amendment to the director plan
to increase the number of shares available for issuance under the plan by
120,000 shares. As of June 30, 2003, pursuant to the amended plan, options to
purchase 30,000 shares have been granted to each outside director at exercise
prices ranging from $1.31 to $1.75 per share. Options granted under the director
plan vest one-third each year for three years and expire five or ten years after
the date of grant, or, if sooner, three months after the holder ceases to be a
director (subject to certain exceptions contained in the plan). At June 30,
2003, 150,000 options were outstanding and 140,000 were exercisable pursuant to
the director plan.
The total number of shares and type of security subject to these plans and to
any awards under these plans are subject to adjustment in the case of stock
splits, stock dividends and similar actions by us.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations for the Three and Nine Months Ended June 30, 2003 and June
30, 2002
For the three and nine months ended June 30, 2003 and 2002, the following table
provides the percentage relationship to net sales of principal items in our
Consolidated Statements of Operations. It should be noted that percentages
discussed throughout this analysis are stated on an approximate basis.
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of goods sold 46 47 48 50
---- ---- ---- ----
Gross profit 54 53 52 50
Royalty and licensing income 6 7 6 7
---- ---- ---- ----
Total operating income 60 60 58 57
Operating expenses 82 66 _74 69
---- ---- ---- ----
Income from operations (22) (6) (16) (12)
Other income, net 0 1 _0 1
---- ---- ---- ----
Income before taxes on income (22) (5) (16) (11)
Tax (benefit) expense (8) (2) (6) (4)
---- ---- ---- ----
Net income (loss) (14)% (3)% (10)% (7)%
==== ==== ==== ====
12
Revenues
The following sales analysis provides information as to the percentage of
net sales of our primary product lines. Revenues realized from sales of less
significant revenue producing product lines are classified as "Other" for
presentation purposes.
Three Months Ended Nine Month Ended
June 30, June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Traffic Safety Systems $2,188,334 $1,973,247 $5,311,848 $5,068,100
Percentage of revenues 74% 73% 67% 68%
Professional Measurement Systems 475,148 456,493 1,705,314 1,664,957
Percentage of revenues 16% 17% 22% 23%
Other 305,063 284,747 908,651 682,237
Percentage of revenues 10% 10% 11% 9%
Total Revenues $2,968,545 $2,714,487 $7,925,813 $7,415,294
========== ========== ========== ==========
Comparison of Three-Months Ended June 30, 2003 and the Three-Months Ended June
30, 2002
Net sales in the third quarter ended June 30, 2003 increased 9% to $2,968,545
from $2,714,487 realized in the third quarter ended June 30, 2002.
Of the total, Traffic Safety sales increased 11% to $2,188,334 from $1,973,247
in the comparable 2002 quarter. North American Traffic Safety sales increased
34% to $1,519,713 from $1,137,421 reflecting increased state contract orders and
growth in our central and south central territories. This increase was partially
offset by a 20% decrease in international Traffic Safety sales to $668,622 from
$835,827 due to a delay in two large orders which should be shipped in the
fiscal fourth quarter.
Professional Measurement sales increased 4% to $475,148 in 2003 as compared to
$456,493 realized in 2002. North American sales rose 2% to $324,754 from
$317,756. The domestic sales force was fully staffed during the third quarter.
International Professional Measurement sales increased by 8%, to $150,394 from
$138,737 due to continued positive contributions from our dealers in Asia.
International sales accounted for 28% of net sales, totaling $829,215 in the
third quarter 2003, down from 36% of net sales at $980,832 in the same quarter a
year ago. Timing of orders and a restrained economic environment internationally
have negatively impacted our sales.
The third quarter of 2003 ended with a backlog of orders totaling $1,337,580 of
which $955,280 is scheduled to ship before the end of the current fiscal year
and $382,300 is scheduled for delivery over the next twelve months.
Higher unit volume coupled with improved overhead control resulted in a slight
increase in gross margins to 54% of sales in the third quarter versus 53% of
sales in the same period a year earlier.
Royalty and licensing income was $180,126 in the third quarter of 2003 compared
to $175,353 in 2002 representing a 2.7% increase. This increase represents a new
distribution agreement by our licensee with a new mass marketer on a specific
licensed product.
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Total operating expenses increased 37% to $2,440,194 for the 2003 third quarter
from $1,776,588 for the comparable 2002 period. The increase in operating
expenses is primarily due to higher legal expenses incurred in connection with
our patent infringement trial and additional expenses associated with the
Special Committee of the Board of Directors, their legal fees, and outside
financial appraisal advice. Expenses relating to our patent infringement suit
were approximately $645,000 and our expenses associated with the Special
Committee were approximately $190,000 for the quarter. The third quarter of 2003
ended with an operating loss of $656,540 as compared to a loss of $161,579 in
2002. Net loss after other income and taxes was $418,138 compared to a loss of
$88,781 a year ago, or a net loss of 0.08 per basic share compared to a loss of
0.02 per basic share the prior year.
Comparison of Nine Months Ended June 30, 2003 and the Nine Months Ended June 30,
2002
Net sales for the first nine months of 2003 were $7,925,813, up 7% from
$7,415,294 during the first nine months of 2002.
Traffic Safety sales increased 5% during the first nine months of 2003 to
$5,311,848, compared to $5,068,100 a year earlier. North American Traffic Safety
sales increased 13% to $3,445,827 compared with $3,042,680 for the first nine
months of 2002. Domestic government agencies shifted spending priorities more
toward community safety related activities which benefited sales. International
Traffic Safety sales declined 8% to $1,865,022 from $2,025,421 reflecting delays
in certain government spending internationally.
Professional Measurement sales increased 2% to $1,705,314 for the first nine
months of 2003 compared to $1,664,957 realized in the comparable 2002 period.
North American Professional Measurement sales decreased 16% to $910,387 from
$1,078,751. Interruptions caused by the reorganization of the sales force was
the primary reason for this decline. International Professional Measurement
sales increased 36% to $795,927 from $586,205. As the international sales force
has matured, it has more effectively communicated the value of our products
which has strengthened sales.
International sales comprised 34% of net sales during the first nine months of
2003 as compared to 36% for the corresponding 2002 period. Foreign sales are
expected to continue to account for a significant portion of our revenues.
Gross profit as a percentage of net sales grew to 52% for the first nine months
of 2003 compared to 50% for the first nine months of 2002. Higher sales volume
positively impacted our gross margins.
On a year-to-year basis, royalties decreased 7% to $483,585 for the first nine
months of 2003 from $521,241 realized in 2002 resulting primarily from increased
competition.
Total operating expenses increased 15% to $5,897,149 for the first nine months
of 2003 from $5,146,859 for the first nine months of 2002. Higher legal fees
incurred in conjunction with the Asia Optical/Nikon patent suit, additional
expenses associated with the formation of the Special Committee of the Board of
Directors, their legal fees, and outside financial appraisal advice increased
operating expenses. Total expenses incurred associated with the evaluation of
proposals to acquire our assets were approximately $430,000 for the first nine
months. We anticipate subsequent additional expenses until the process is
complete. As a percentage of net sales, total operating expenses increased to
74% for the first nine months of 2003 from 69% for the first nine months of
2002. Net loss after other income and taxes for the first nine months was
$789,948 compared to a net loss of $528,076 a year ago, or a net loss of 0.14 a
basic share compared to a net loss of 0.10 a basic share the prior year.
Liquidity and Capital Resources
Our net working capital at June 30, 2003 was $7,582,709 compared to working
capital of $8,196,231 at September 30, 2002, a decrease of $613,522. Current
assets exceeded current liabilities by a ratio of 7 to 1. Furthermore, the acid
test ratio (ratio of current assets minus inventories and prepaid expenses to
liabilities) was in excess of 4 to 1. Thus, the present working capital is
expected to adequately meet our needs for at least the next twelve months. The
settlement of $2.4 million received in July 2003 from Asia Optical resolving our
patent infringement lawsuit will positively effect our cash position.
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An increase in inventories of $109,522, other assets of $92,009 and a net loss
of $789,948 were the largest operating activities requiring financing. An
increase in deferred income tax benefit of $353,811 also increased cash
requirements. Adjustments to reconcile net income to cash provided by operating
activities were depreciation and amortization of $308,908 and a loss on disposal
of assets of $2,087. The operating activities that provided cash were an
increase in accounts payable and accrued expenses of $272,861 and a reduction in
trade accounts and royalty receivables of $445,104.
For the nine months ended June 30, 2003, cash used in investing activities of
$134,567 was applied toward the purchase of property and equipment of $85,911
and capitalized patent costs of $48,656. Cash used in operating activities of
$316,330, added to expenditures on investing activities resulted in a net
decrease in cash and equivalents of $450,897. When subtracted from cash on hand
at the beginning of the year, total cash and equivalents at June 30, 2003 stood
at $3,161,740. Thus, cash and equivalents alone comfortably exceeded total
liabilities of $1,192,933 at the end of the period.
Our net working capital at June 30, 2002 was $7,908,129 as compared to working
capital of $8,201,411 at September 30, 2001, a decrease of $293,282. Current
assets exceeded current liabilities by a ratio of 10 to 1. Furthermore, the acid
test ratio was 6 to 1. Thus, the present working capital is expected to
adequately meet our needs for at least the next twelve months.
An increase in prepaid expenses and other assets of $246,601 and a net loss of
$528,076 were the largest items that required funding. Patent costs and
purchases of fixed assets required an additional $159,682 of cash. Adjustments
to reconcile net income to cash provided by operating activities were
depreciation and amortization of $375,115, a write down of Patents of $14,945
with a loss on disposal of property and equipment of $4,416. The operating
activities that provided cash were a reduction of inventory of $1,196,245 and a
reduction in accounts receivable of $1,022,486. The other material item that
decreased cash was a reduction of accounts payable and accrued expenses of
$45,323.
For the nine months ended June 30, 2002, a net cash decrease of $159,682 from
investing activities was due to the purchase of property and equipment of
$110,076 and patent costs of $49,606. After repayments of $14,611 on long term
debt and capital leases, the increase from operating activities of $1,793,207
produced a net increase in cash and equivalents of $1,618,914. When added to
cash on hand at the beginning of the fiscal year, total cash and equivalents at
June 30, 2002 stood at $3,260,500. Thus, cash and equivalents alone exceeded
total liabilities by $2,385,458 at the end of the period.
Cautionary Statements Regarding Forward-looking Statements
Forward-looking statements in this report are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
advised that actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve risks and uncertainties including
but not limited to, continued acceptance of our products in the marketplace,
competitive factors, potential changes in the budgets of federal and state
agencies, compliance with current and possible future FDA or environmental
regulations, and other risks detailed in our periodic report filings with the
SEC.
ITEM 3. Controls and Procedures
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective to cause the material information required to be
disclosed by us in the reports that we file or submit under the Exchange Act to
be recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 8, 2000, we filed a complaint against Nikon, Inc. ("Nikon") in U.S.
District Court for the District of Colorado (Civ. No. 00-B-272) for selling and
using a product infringing one of our patents. On July 26, 2000, we amended the
complaint to include allegations that Nikon's conduct infringed a second patent
obtained by us. On January 23, 2001, we amended the complaint to add
manufacturer Asia Optical Co., Inc. ("Asia Optical") as a defendant. On May 24,
2001, we amended the complaint to include allegations that Nikon and Asia
Optical infringed a third patent obtained by us.
On April 17, 2003, after an eight-day trial, a jury found Asia Optical and Nikon
liable for infringing all three patents. Additionally, the jury found that Asia
Optical's infringement was willful as to all three patents, and that Nikon's
infringement was willful as to one of the patents. The jury awarded us $1.205
million in damages for past infringement. The Court entered a permanent
injunction against Asia Optical and Nikon regarding continued sales of the
product. In post-trial motions, we sought enhanced damages, prejudgment interest
and attorneys fees. Asia Optical and Nikon sought a new trial.
Prior to judicial resolution of the post-trial motions, on July 3, 2003, we
announced that we reached settlement agreements with Asia Optical Co., Inc. and
Nikon, Inc., which resolved Laser Technology's patent infringement lawsuit
against Asia Optical and Nikon. The settlement agreement with Asia Optical
includes a one-time cash payment of $2.4 million, which was received July 3,
2003 and will be subject to corporate income taxes, and an ongoing royalty
license agreement, the specific terms of which are confidential. Laser
Technology entered into a mutual release with Nikon based upon the settlement
with Asia Optical. Management estimates that the costs and expenses associated
with the litigation through this fiscal 2003 will be approximately $800,000. All
other litigation costs have been expensed in prior years.
In March 2002, Bushnell Performance Optics of Overland Park, Kansas filed a
lawsuit against us in the District Court of Johnson County, Kansas (Case No. 02
CV 1498). The lawsuit alleges breach of contract and unauthorized surcharges on
a certain technical component. Bushnell is asking for $350,000 in damages. We
have filed with the Court an answer containing several counterclaims whereby we
allege, among other claims, a breach of contract by Bushnell, fraud and
defamation, and also ask for an injunction against Bushnell.
On August 11, 2003, Bushnell and the Company filed a joint motion to stay
proceedings in this suit in order to give the Company time to complete the
merger announced on July 31, 2003.
Notwithstanding the lawsuit, we continue to conduct business with Bushnell under
the terms of our current contract.
Item 2. Changes in Securities and Use of Proceeds
This Item is not applicable.
Item 3. Defaults Upon Senior Securities
This Item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the third quarter ended June 30,
2003.
Item 5. Other Information
On September 27, 2002, a shareholder group headed by David Williams, our
former President, proposed to acquire all of our tangible and intangible assets
except for cash and cash equivalent assets and to assume all of our liabilities.
As a condition of its offer and concurrent with its purchase of non-cash assets,
the group proposed that we pay a cash dividend to
16
our common stockholders of $1.10 per share. The shareholder group subsequently
formed LTI Acquisition Corp. In addition to Mr. Williams, LTI Acquisition's
shareholders include Pamela Sevy, our former CFO, current Board members Jeremy
G. Dunne, H. Deworth Williams, and Edward F. Cowle, and Kama-Tech Corporation
and Kama-Tech (HK) Ltd., manufacturers of sports optics equipment.
Following the original proposal, our Board of Directors appointed a
Special Committee of nonparticipating directors to examine the merits and
feasibility of the proposal and any other alternatives. The Special Committee
retained independent legal counsel and Andersen, Weinroth & Co., L.P., a New
York based merchant-banker, to act as its financial advisor.
The Special Committee received indications of interest and proposals from
several alternative sources. LTI Acquisition submitted a revised proposal to
acquire 100% of our outstanding shares of common stock for $2.06 per share in
cash. The Special Committee reviewed all serious proposals and, after extensive
negotiations with interested parties and a lengthy due diligence process, the
Committee, in conjunction with its investment advisor, recommended to our Board
that it accept the proposal from LTI Acquisition.
On July 31, 2003, we entered into a definitive Agreement and Plan of
Merger with LTI Acquisition and its wholly-owned subsidiary, LTI Merger Sub,
Inc. Under the terms of the agreement, LTI Merger Sub will be merged with and
into Laser Technology, after which we will be the surviving corporation as a
privately held, wholly-owned subsidiary of LTI Acquisition. Accordingly, the
outstanding shares of our common stock will be converted into the right to
receive an amount equal to $2.06 in cash per share. Following the completion of
the proposed merger, we will be a privately owned entity and our shares will no
longer be traded in the public market. Laser Technology stock will be delisted
from the American Stock Exchange and the sole shareholder of Laser Technology
shares will be LTI Acquisition. In addition, the registration of Laser
Technology common stock and our reporting obligations under the Exchange Act,
will be terminated upon application to the SEC after the merger.
We intend to file with the SEC and mail to our shareholders a proxy
statement in connection with the acquisition, which will contain important
information about the merger and related matters. We anticipate holding a
special meeting of shareholders in the fourth calendar quarter of 2003 to secure
shareholder approval of the merger transaction. The merger is subject to
approval by the holders of at least 66 2/3% of our outstanding shares of common
stock, excluding those shares owned by LTI Acquisition and its affiliates, and
other customary closing conditions. There can be no assurance that our
shareholders will approve the merger proposal or that the merger will be
finalized.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of C.E.O. Pursuant to Section 302 of the
Sarbanses-Oxley Act of 2002.
Exhibit 31.2 Certification of C.F.O. Pursuant to Section 302 of the
Sarbanses-Oxley Act of 2002.
Exhibit 32.1 Certification of C.E.O. Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32.2 Certification of C.F.O. Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
On July 3, 2003, we filed a Form 8-K reporting under Item 5 that we had
reached settlement agreements with Asia Optical Co.,Inc. and Nikon, Inc. related
to our patent infringement lawsuit.
17
On August 4, 2003, we filed a Form 8-K reporting under Item 5 that we had
entered into a definitive merger agreement with LTI Acquisition Corp. whereby
LTI Acquisition would acquire 100% of our common stock for $2.06 per share.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LASER TECHNOLOGY, INC.
7070 South Tucson Way
Englewood, Colorado 80112
Date: August 14, 2003 By /s/ Eric A. Miller
--------------------------------------
Eric A. Miller
Chief Executive Officer, President
and Director
Date: August 14, 2003 By /s/ Elizabeth A. Hearty
--------------------------------------
Elizabeth A. Hearty
Chief Financial Officer, Treasurer
and Secretary
18